The global energy transition is in full swing, with electrification – and lithium stocks – at its core.
This shift is driving the demand for battery materials, positioning IGO Ltd (ASX: IGO) at the forefront of the market.
At the time of writing, IGO shares are priced at $5.38 and are down 40% this year.
Despite recent challenges in the lithium sector, highlights from the company's strategy day suggest there are bullish points. Let's examine them.
IGO's refocus on lithium and nickel
The lithium stock says it is doubling down on its lithium operations, leveraging its stake in the Greenbushes mine.
As a reminder, Greenbushes is currently the world's largest hard rock lithium mine, located in Western Australia.
CEO Ivan Vella highlighted IGO's strategy to remain focused on upstream mining, particularly lithium, nickel, and copper, which are essential for electric vehicle (EV) batteries.
This upstream focus aims to generate value by tapping into the surging demand for other battery materials.
Under our new strategy, IGO will focus on upstream mining…We intend to build out a diversified portfolio with exploration, development and operating assets in lithium via our joint venture, and copper and/or nickel.
We also see a substantial opportunity in developing commercial capability in lithium.
IGO's commitment to 'the full suite' of battery metals is telling. It suggests it sees strong demand in the years to come.
It says the segment will need to expand by "at least 3x by 2035", which equals the same as "80 new unfunded projects".
Regarding the volatility and lithium price slump, IGO said this should be expected, given the market is still in its infancy.
Long term fundamentals remain intact with demand expected to continue to grow at a rapid, albeit at disjointed pace.
Long-term demand for battery materials, lithium stocks
Despite short-term lithium price volatility, IGO says the long-term fundamentals for battery materials remain sound. This could impact lithium stocks.
The EV market is set to drive substantial demand for lithium, nickel, and copper, with lithium demand expected to triple by 2035.
However, IGO also says we are at a point in the EV cycle where sales are "limited by demand".
But while the market is currently experiencing a cyclical downturn, IGO believes this will only amplify the next upswing in prices.
The company also pointed out that the challenges in scaling lithium production could present significant opportunities for well-positioned miners.
Meanwhile, it will create "significant challenge[s]" for other lithium stocks.
Government support and EV adoption
There is increasing global government support for EVs and renewable energy initiatives.
Countries across the world, including Australia, are pushing forward with policies that incentivise EV adoption and promote the development of clean energy infrastructure.
These initiatives include subsidies for EV purchases, investments in EV charging networks, and regulatory mandates for reducing carbon emissions.
As governments ramp up their commitments to reducing greenhouse gas emissions and transition to clean energy, the demand for lithium – a key component in EV batteries – is expected to grow exponentially.
Ongoing technology improvements in EVs and batteries will drive demand but also keep pressure on [original equipment manufacturers] OEM's and value chain to evolve.
Battery chemistry, processing technologies, extraction techniques and EV technology change will continue to accelerate.
IGO says this tailwind from policy support, coupled with a growing awareness of climate change, means lithium demand can rise, potentially benefitting lithium stocks.
Lithium stocks takeaway
Lithium stocks have suffered in the last 12 months, but IGO's strategy day has sprinkled some hope to the sector. It says the long-term outlook hasn't changed despite overall pricing in the sector.
Things like EVs, electrification and the energy transition still appear to be well in situ. Time will tell how this plays out in the sector.
IGO shares are down 59% in the last 12 months.
